Sunday, November 25, 2012

Is the end of DRPA's Econ. Dev. Spending a Good Thing?

By Greg

This article today criticized the Delaware River Port Authority (DRPA) for failing to collect on its economic development loans, and quotes a DRPA spokesman explaining that soon "DRPA will be completely out of the loan and grant business." In recent history DRPA has been criticized for using toll money to fund economic development projects, and the media have exposed that some of DRPA's loans and grants seem to have been politically motivated, going to private developers (who may not need the assistance), and the selection process was at times more discretionary than competitive.

For these things DRPA deserves the heat it has received. However, this is not an open and shut case of a corrupt agency being put in its place. It is important to look at the larger issues of what demonizing DRPA's economic development investments (and DRPA subsequently rolling back those investments) means for the region.

Firstly, the article criticizes DRPA's lax collection on its loans. It is simple to characterize this as back-patting government corruption. But maybe it's more complicated than that. There is no mandate that public or quasi-public entities loan out their money (rather than grant it). If the point of a loan is to seed a project that improves a commercial corridor, creates jobs, or has educational/social outcomes, and the project is not cash flowing adequately to repay the loan, it may be in the public's best interest to turn that loan into patient capital. Lots of worthy projects that have significant social outcomes never make as much money as projected. If a charter school is seeing student progress but can't repay its loans, should DRPA take steps that would put the school in financial hardship? A bank will call in its loan regardless. The government has to weigh its responsibilities. Projects like waterfront redevelopment and schools may take a long time to truly have an impact.

Secondly, the article explains, "Spending on non-transportation projects has long been a source of controversy for the DRPA. Many motorists complain their tolls shouldn't go for development projects..." There are lots of examples of public revenue from one source funding something somewhat unrelated; in many parts of the country, property taxes are used to fund schools (even if you don't have school-aged kids). For a long time, and in many places, toll revenue has been used to fund non-transportation projects. This is neither novel nor necessarily wrong. True we have a huge need for transportation funding in this country, but the reality is that it is perfectly okay to invest public revenue from one source into a different but worthy public need. Some of the DRPA-funded projects would not have been my top priorities, but others were very worthy economic development investments.

This brings me to my third point: just as there is a shortage of transportation dollars in America and in the Delaware Valley, so is there a shortage of economic development dollars. Federal sources that fund economic development, such as CDBG and EDA are annually on the chopping block. SBA programs for microlending are way underfunded. In Philadelphia, the Commerce Department uses CDBG money as well as periodic bonds to fund economic development work, but those dollars are few and far between. PIDC has few grant programs, and its loan dollars are very competitive. At the state level there is RACP (another controversial program that Governor Corbett recently gave an overhaul), but that also has had its budget slashed. DRPA used to be one of these few pots that could fund risky but worthy economic development projects, and that could be counted on as relatively patient capital. No longer. 

Now with DRPA vowing to stop these kinds of investments it's unclear whether any of these other sources will fill in the economic development funding gap that is left behind. Unlikely, if you ask me. Again, none of this excuses political favoritism, helping private developers who don't need the help, or a closed-door selection process, but it's important to see that the end of DRPA's economic development funding is not necessarily a good thing. Is using toll dollars to fix roads more important than building schools and rebuilding communities? Hard to say. Could DRPA's process have been reformed to make it accountable and transparent? Now we'll never know.